Weak Thai economy prompts downgrade of Asia’s weakest currency

For February, Thailand’s manufacturing production and balance of payments figures continue to paint a weak picture of this economy.

Extending its two-year-long negative growth streak further, the manufacturing production posted a -1.1% year-on-year contraction in February. The results weren't far off from our -1.8% YoY forecast for the month, though it was a significant disappointment for the consensus centred on a swing to positive growth. In slightly better news, January manufacturing contraction was revised up to -2.0% YoY from -2.8% initial print. This brings the average January-February output fall to -1.6% YoY.

The balance of payments data for February showed the current account posting the fourth consecutive month of deficit. The deficit widened to $1.07 billion in the last month from $673 million in January. Nothing surprising here given the continued weak merchandise trade balance and absence of the tourism-related services inflow.

The $1.7 billion cumulative current deficit in the first two months of 2021 contrasts sharply with the $8.8billion surplus in the same months of 2020.

These indicators reinforce a negative growth trend the Thai economy has been on since the last year.

We consider our forecast of -3.5% YoY GDP fall in 1Q21 at risk at more downside than an upside miss - and the same goes for our FY21 forecast of 2.8%.

While most Asian countries have been enjoying a vigorous export recovery since mid-2020, Thailand’s export growth has been stuck in negative territory (-1.2% YoY in 2M 2021). Although this explains some of the manufacturing weakness, the anaemic domestic demand also weighed down the output growth. Adding the lack of tourism problem to the services sector and we have one more quarter of GDP contraction on our hands. Meanwhile, a significant negative swing in the current account balance means that net trade prevailed as the key expenditure-side source of GDP contraction for the fifth straight quarter.

We consider our forecast of -3.5% YoY GDP fall in 1Q21 at risk at more downside than an upside miss - and the same goes for our FY21 forecast of 2.8%.